Inflation Fears, Sputtering Wages

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Inflation may not be at the forefront of worries about economy for now, but it’s certainly in the back of many investors’ minds. Not that anyone thinks price increases will be reinforced by the labor market, as per the old “wage-push” theory. A new report from the International Labor Organization showed that wage growth continued to decline around the world in 2008, falling to 1.4 percent last year from 4.3 percent in 2007. The UN group also suggested things have gotten worse this year.

The picture on wages is likely to get worse in 2009 – despite the beginning of a possible economic recovery. Compared to the annual average of 2008, the real wages in the first quarter of 2009 fell in more than half of the 35 countries for which recent data is available. The downward trend in wages raises some questions about the extent to which the consumption of workers and their families will be able to sustain aggregate demand for economic production once the effects of government rescue packages peter out.

This trend has not, however, succeeded in calming those spooked by unprecedented monetary and fiscal stimulus from governments and central banks around the world. Indeed, inflation-hedging is creating market niches all of its own. The Treasury, for instance, is expected to bring back 30-year Treasury Inflation Protected Securities, or TIPS, as part of its quarterly refunding announcement on Wednesday. Gorge Goncalves at Cantor Fitzgerald notes:

The Treasury could expand its TIPS offerings and or bring back the 30-Year TIPS to help finance the federal debt needs. In the latest dealer questionnaire the Treasury asked about potential changes to the TIPS program including the replacement of the 20-year TIPS with a new 30-year TIPS security.

Bond giant PIMCO, in the meantime, has introduced its own new anti-inflation fund, which it says is composed of a mix of TIPS and municipal bonds. John Cummings, who will manage the fund, offers some insight into the reasoning behind its creation.

With growing U.S. deficit projections and continued economic uncertainty, investors are facing the potential for higher taxes, elevated financial risks and the need to protect the purchasing power of their investments against inflation over time.

Nothing they do will work. They should have taken care of the people and let the banks suffer the consequences of their actions.Stimulus was supposed to have been applied for the citizen. We citizens got one round of stimulus checks. When the banking industry saw that we were focused paying our debts, the banks argued that they would loose profitability due to lack of “securitization”.So the idea was that if we citizens pay down our debt then it would be bad fro them because they would loos profit. Our representatives felt it was more important to “stabilize” the business/banking sector than to ensure that the citizenry was protected from the fallout of this stupid path.Our citizens are treated like cattle to be bought and sold by merchants who grease the palms of our leaders. When whole families are going homeless, sick, and hungry, the government is busy kissing AIG, BOA, and Goldman’s Sachs collective ass.We are not animals and we should not be content to live as such.